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Six Overlooked Entrepreneurial Traps That Will Kill Your Business, #7: Poor Accounting

Updated: May 28


Since I have started writing about the "Six" traps that will kill your business, I realize that there is one more that is SO common and SO in our faces, and I almost overlooked it: Poor Accounting! Yes, I can count, but I have to add one more!


Life happens in seasons. Unfailingly there are times in the valley when what we saw on the mountaintop becomes hard to remember. In these times, continuing the present course can become unbearable.

Tired of college and on the wrong dean's list, I found myself at such a time. At that moment, dropping out of college seemed right and felt good. Knowing how to drive a dump truck, I interviewed at a construction company. Seeing a full year of Accounting 101 on my resume, Bob Guthrie hires me as his "controller."

First day on the job, Bob opens the door to his "board room," a room in his modular office building. On a faux wood grain table are stacks of bills; white concrete bills, yellow gravel tickets, pink asphalt invoices, and tan time cards with payroll stubs.

"Here are the bills from last year; can you tell me which jobs I made money on?"

When people first began flying airplanes, they did so without the benefit of sophisticated navigation tools and ground communication abilities. This came to be known as "flying by the seat of your pants."



Bob has been doing business by the "seat of his pants." He makes decisions impulsively as he goes. Accurate financial records would give him a clearer perspective for making daily financial decisions. Without them, he makes each daily decision as it comes up, not thinking of the future obstacles that might interrupt his path.

Bob hires family members that are not the best choices for their jobs. His advisors are his buddies who are not the best experts for their roles. His accountant is a professor, his lawyer is a politician, and his estimator is a DOT worker.

Bob doesn't know it, but he has been losing money on every single job for the last year. When money comes in, he believes he is making money. Assuming he is making money, he runs every conceivable expense through the business, including his ex-wife's house payment and his and her Cadillacs.

This is an excellent opportunity for a college dropout to learn how not to run a business and find the inspiration to go back to school!

Failure to keep accurate records is one of the primary reasons businesses don't survive. The number one reason eight out of ten companies fail is a lack of profitability. Many entrepreneurs are already failing, but they are unaware because of a lack of good record-keeping.

Mike Michalowicz sums it up:

The majority of small businesses, and medium businesses and even some big ones, are barely surviving. That guy driving the new Tesla whose children go to private school via chauffeur and who lives in a massive house and runs a $3 million company, is one bad month from declaring bankruptcy. I should know; he's my neighbor.

Is this you? If so, GET STARTED GETTING PERSPECTIVE TODAY!

  1. Get a competent accountant who can reconcile your bank accounts and provide you with a monthly income statement, balance sheet, and cash flow statement. These should be available by the tenth of each following month.

  2. Invest the time and energy to learn how these statements matter in running your business.

  3. Every Friday, meet with your key staff members and go over your accounts receivables and payables. Be aware of all aging receivables and payables 30, 60 and 90 days.

Great entrepreneurs know, on a weekly basis (even daily!), their liquid assets and short-term liabilities.

How does this post affect you? What obstacles are in your way? Why don't you have an accurate picture of your profitability? I want to know how to help you and others like you. Respond to this email/post and let me know your obstacles. I want to address them.

My vision hinges on your success.

Harry T. Jones




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